Black Box Limited Vs C.C.E. & S.T. (CESTAT Ahmedabad)
Services provided to Jammu & Kashmir are outside the purview of service tax hence such service are neither taxable nor exempted
CESTAT Ahmedabad held that services provided to the State of Jammu & Kashmir are not liable to service tax, as Section 64 of Chapter V of Finance Act, 1994 excludes the applicability of service tax to the state of Jammu and Kashmir, hence these services are neither taxable nor exempted.
Facts- M/s Avaya Global Connect Ltd. (Formerly known as M/s AGC Networks Ltd and Presently known as M/s Black Box Ltd.) is manufacturer of EPABX System and has provided taxable services of “Erection Commissioning and Installation”, Maintenance or Repairs”, “Consulting Engineering”, “Scientific and Technical Consultancy Services” and registered with the Service tax department.
During the course of audit, it was observed by the department that Appellant has provided exempted as well as taxable services. It was found that Appellant had not maintained separate account in respect of receipt, consumption and inventory of input services meant for use in providing output services which were chargeable to tax as well as exempted service, as provided under Rule 6(2) of Cenvat Credit Rules, 2004, but they had availed Cenvat Credit on the entire input services received by them. Thus as per condition of clause (c) of Rule 6(3) of Cenvat Credit Rules 2004 w.e.f. 10.09.2004 appellant were required to utilize credit only to the extent of an amount not exceeding 20% of the amount of Service tax payable on taxable output services. Prior to this date, the service provider were entitled to the extent of 35% of the Service tax payable on taxable output service as per sub-rule (5) of Rule 3 of erstwhile Service tax Credit Rules, 2002. It was noticed that appellant had utilized cenvat credit of more than admissible amount i.e. 20% /35% of the amount of Service tax payable on taxable output services.
Accordingly, show cause notice was issued to the Appellant for short payment of Service tax. The said show cause notice was adjudicated wherein entire demand was confirmed.
Conclusion- Held that there is no levy of service tax on the services provided in Jammu & Kashmir. The Department has construed the services rendered in Jammu & Kashmir to be exempted service. As per the definition given in Rule 2(e) of CENVAT Credit Rules ‘Exempted services’ means taxable services which are exempt from the whole of the service tax leviable thereon and includes services on which no service tax is leviable under Section 66 of the Finance Act. Since the service provided to the state of J&K are not liable to service tax, as Section 64 of Chapter V of Finance Act, 1994 excludes the applicability of service tax to the state of Jammu and Kashmir, these services are neither taxable nor exempted. The services provided to nontaxable territory cannot be considered as exempted service. Hence in our view provisions of Rule 6 of Cenvat Credit Rules is not applicable and no service tax demand is sustainable in this matter.
Based upon interpretation of the provisions of the Finance Act, 1994 and Cenvat Credit Rules, 2004 they bonafidely believed that they are entitled for the Cenvat credit and they correctly utilized the cenvat credit. In order to invoke the extended period, there should be suppression or willful misstatement with intention to evade payments of tax. The issue involved is of interpretation wherein the department is of the view that the appellant is not eligible for credit and they were liable to maintain separate accounts in order to avail credit when input services were common or non-entitlement when the services were exclusively used in exempted service. Whereas, the appellant were under the belief that the activities not being covered under exempted service, the credit is eligible even if service provided to SEZ units and clients of Jammu & Kashmir.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
Appellant has filed this present appeal being aggrieved by Order-in Original No. AHM-EXCUS-003-COM-005-18-19 dated 27.06.2018 passed by the Commissioner of Central Excise & Service tax, Ahmedabad- III.
2. The brief facts of the case is that M/s Avaya Global Connect Ltd. (Formerly known as M/s AGC Networks Ltd and Presently known as M/s Black Box Ltd.) is manufacturer of EPABX System and has provided taxable services of “Erection Commissioning and Installation”, Maintenance or Repairs”, “Consulting Engineering”, “Scientific and Technical Consultancy Services” and registered with the Service tax department. During the course of audit, it was observed by the department that Appellant has provided exempted as well as taxable services to their clients situated at Jammu & Kashmir and services provided to the units of situated in Special Economic Zones. In view of the Section 64 of Finance Act 1994, Service tax was not leviable on services provided in the State of Jammu & Kashmir. The Service provided in the SEZ units were exempted vide Notification No. 4/2004-ST dated 31.03.2004. Thus as per the definition of „exempted service‟ given in Rule 2 (e) of Cenvat Credit Rules 2004 these both the services are exempted services. It was found that Appellant had not maintained separate account in respect of receipt, consumption and inventory of input services meant for use in providing output services which were chargeable to tax as well as exempted service, as provided under Rule 6(2) of Cenvat Credit Rules, 2004, but they had availed Cenvat Credit on the entire input services received by them. Thus as per condition of clause (c) of Rule 6(3) of Cenvat Credit Rules 2004 w.e.f. 10.09.2004 appellant were required to utilize credit only to the extent of an amount not exceeding 20% of the amount of Service tax payable on taxable output services. Prior to this date, the service provider were entitled to the extent of 35% of the Service tax payable on taxable output service as per sub-rule (5) of Rule 3 of erstwhile Service tax Credit Rules, 2002. It was noticed that appellant had utilized cenvat credit of more than admissible amount i.e. 20% /35% of the amount of Service tax payable on taxable output services. Accordingly, show cause notice was issued to the Appellant for short payment of Service tax. The said show cause notice was adjudicated vide OIO dated 30.03.2009 wherein entire demand was confirmed. Being aggrieved with the order appellant had preferred an appeal before CESTAT. Vide Order dated 06.01.2010 CESTAT remanded the matter back to the adjudicating authority for fresh decision. Thereafter the matter was again decided vide OIO dated 26.06.2012 and Appellant filed appeal before the Tribunal. Thus, vide final order dated 03.12.2012, tribunal had remanded case again to the Commissioner for fresh decision. Learned Commissioner in denovo adjudication again confirmed the demand vide impugned order, therefore appellant is before us.
3. Shri P P Jadeja, Learned Consultant for the appellant submits that unless department shows in SCN itself that Appellant has availed credit of input services which have also been used for providing any of exempted services, then only, question arise for maintaining separate account for receipts, consumption, inventory of Input and input services meant for use in taxable and exempted services. Therefore, when Appellant claims not to have taken credit on common input services for output services provided in Jammu & Kashmir, hence such burden of proof is not discharged by department who is making allegation that credit is taken on input services.
3.1 He also submits that Section 51 of SEZ Act has over ridding effect over provisions of other Acts & Rules, as provided that supply of goods and services from the Domestic Tariff Area to SEZ unit or Developer are exports in terms of section 2(m) of SEZ Act. Further, Rule 6(6A) of Cenvat Credit Rules 2004 having retrospective effect has provided obligation of manufacturer or provider of output service, stipulates that provision of sub-rules (1),(2),(3) and (4) shall not be applicable in case taxable services are provided, without payment of service tax, to a unit in a Special Economic Zone or to a developer of a Special Economic Zone for their authorized operations. Thus in facts of this case, supply of service to unit in SEZ were „exports‟ and therefore all benefits of „exports‟ would be available to the Appellant. Accordingly, in terms of Rule 6(6A) of Cenvat Credit Rules, 2004, there was no requirement to reverse any amount of Cenvat Credit in terms of Rule 6(3) of the Cenvat Credit Rules, 2004, when „taxable services‟ are provided, without payment of service tax, to a unit in a Special Economic Zone with due procedure. He placed reliance on the following decisions:
